All You Need To Know About Wage Garnishment

As per the latest study by the ADP Research Institute, the IRS garnishes wages of around seven percent of workers in America every year. There are many types of debts which can result in wage garnishments, such as unpaid federal or state taxes, overpaid unemployment benefits or social security, alimony, credit card debt, child support, and personal bankruptcy. A garnishment order from the IRS is time-sensitive and may impose an extensive compliance burden on employers, making it critical to hire a wage garnishment lawyer who can help them take adequate steps to comply with garnishment orders. Continuing further, let’s discuss everything employers in Texas need to know about wage garnishment. Read on!

Types And Limits Of Wage Garnishments

If an individual and employed taxpayer has an outstanding debt, such as a student loan, child support, or back taxes, the government can garnish their wages. How wage garnishment works, the IRS orders the employer to withhold part of the taxpayer’s salary, sending it directly to the outstanding IRS liabilities. Wage garnishment laws vary from one debt type to another. What you must know, there are a number of restrictions on wage garnishments, including the amount of money the employers can garnish. It is always advisable to speak to experienced counsel to learn how wage garnishment works and how to execute IRS’s orders. To help you with some basic information, let’s check out the limitations on different debt types.

Court Judgments

If a money judgment is entered against a taxpayer for non payment of debts, the plaintiff can garnish the employee’s wages. Most creditors first need a court order to garnish wages. A few exceptions to this are back taxes, child support, and federal student loans. If, for example, an employee fails to pay their credit card bill or default on a loan, the creditor cannot simply start garnishing their wages. They must first win a lawsuit and get a court order to that effect. Federal law limits the amount of money the employer can deduct from an employee’s salary. The amount is either the amount by which the employee’s weekly wages exceed 30 times the minimum wage, or 25 percent of their disposable earnings, whichever is less. The employers cannot fire an employee for wage garnishment for settlement of debt. If an employee’s wages are being garnished for more than a single debt, however, the employer can take some action against the employee.

Back Taxes

If an employee owes any back taxes, the IRS can deduct money from their paycheck, and to do this, they do not need a court order. The amount of money the IRS can garnish from the employee’s paycheck depends on the total number of dependents the employee has and their standard deduction amount. When the IRS garnishes an employee’s wages, they may deduct a significant amount. That is why it is essential for employees to talk to a tax attorney to find out how much they have to owe before the IRS garnishes wages, how much can the IRS garnish wages and learn how you can avoid or stop wage garnishment. Note that before the IRS levies wage garnishment, they must send a “Notice of Intent to Levy” to your employee, and a copy of the same to you (the employer).

Child Support

After the court holds a separating parent accountable for child support, it sends a copy of the order to the parent’s employer. The employer then garnishes wages from the parent’s paycheck and sends the money to the other parent. If the parent who has received the court order is supporting their spouse and another child, the court cannot garnish more than 50 percent of their disposable earnings. If the parent is not supporting any spouse or children, the court may order a garnishment of up to 60 percent of their disposable earnings. The court may also order a deduction of an additional 5 percent of their wages, if they have more than 12 weeks of arrears.

Student Loans

Any person who defaults on a student loan may be subject to a 15 percent deduction of their wages. The agency garnishing a debtor’s wages, unlike in the case of other loans such as credit card loans, does not require a court order to begin the wage garnishment process. They must, however, notify the debtor that their wages will be garnished, 30 days before the garnishment starts. The letter of notification must include:

  • Total debt
  • How to make voluntary payments
  • How to procure a copy of the loan-related documents
  • How to apply for a hearing on the wages to be garnished

An Overview Of IRS Wage Garnishment Law

The Internal Revenue Service (IRS) serves almost two million wage garnishment notices every year. The President’s 2016 Fiscal Year Budget announced that the federal government had collected more than $55 million in wage garnishments in 2014. In cases of wage garnishments, the court issues an order requiring the employer of a tax defaulter to withhold a certain amount of the defaulter’s wage and give it to the person or institution to whom they owe money, which is to be continued until the debt is paid in full. In this section, let’s look at the rules and procedures governing wage garnishment.
The wage garnishment law is applicable in all 50 states of the US, at both federal and state levels. While in most cases, a writ of garnishment is required to initiate a garnishment proceeding; the IRS has the right to garnish a debtor’s wage for unpaid taxes even without a court’s intervention. Wage garnishment is governed by Title-III of the Consumer Credit Protection Act (CCPA) that applies to everyone with a taxable income. On an average, the IRS garnishes 70 percent or more of defaulters’ wages.

Wage Garnishment Processing and How Long the IRS Waits Before Garnishing Wages

Generally, the IRS sends notices under the Collection Notice Stream to allow taxpayers in debt a chance of over several months to pay back their dues or set up a payment method with the IRS. In the absence of any action by the taxpayer, they then send the wage levy notice to the taxpayer’s employer. When a debtor’s employer receives a garnishment order, they notify the debtor (employee) whose wage is to be garnished and send the garnished amount to the IRS. The employer is required to adhere to the garnishment law, even as they provide information to the debtor on how the garnishment can be disputed under the law. Any questions or confusion pertaining to the tax wage levy process should be handled by a qualified IRS tax attorney with an in-depth knowledge of the laws and provisions related to wage garnishment.

Wage Garnishment Laws In Texas

When it comes to wage garnishment laws, the laws in Texas are different from most of the other states in the US. Texas imposes certain limitations on the creditors seeking debtor’s wages to settle their unpaid debts. In addition, there is a limit on the amount that can be withheld from a defaulting debtor’s wage. The following are some peculiarities of wage garnishment laws in Texas.

Creditor’s Rights

Unlike most of the states in the US that allow all creditors to garnish their debtors’ wage, Texas awards the right to only a certain type of creditors. A creditor can garnish wages in Texas for unpaid income tax to the government, court-ordered child support and alimony, or unpaid/defaulted student loans. In such scenarios, a creditor can garnish the debtor’s wages even without a court order.

Termination of Employment

Though Federal law prohibits employers from terminating an employee based on a single garnishment, the law is not applicable for one- or two- garnishment for the same year. However, in the state of Texas, the Wage Garnishment Law is different. Employers in Texas cannot terminate, demote, or reprimand an employee, no matter the number of garnishment.

Garnishment Limitations

Federal law places a limit on the amount a creditor can garnish from a debtor’s paycheck, which varies depending upon the nature of debt and other dynamics. If a debtor has an unpaid federal student loan, the Department of Education can garnish 15 percent of their disposable income. In case of unpaid taxes, the government decides the wage garnishment depending upon the number of dependents the debtor has and the current deduction rate.

Wage Garnishment Rules For Employers

Identify What Wage Garnishment Order Says

After an employee receives a wage garnishment notice, they will need to understand the nature of debt and what the order is asking them to do. The employer needs to calculate the employee’s wage garnishment amount, withhold it correctly through a payroll process, and deliver the payment to the government. They are also required to continue garnishing the wage until the employer receives a release, as any failure to comply with the wage order can result in penalties and the employer can be held liable for the missing payments. Therefore, it is recommended that employers consult a lawyer before they start to develop the process for handling their employees’ wage garnishments.

Follow the Requirements of Wage Garnishment Notice

A lot of employers inquire whether they have to notify employees of garnishment. Once the IRS sends the wage garnishment order, the employer should notify the employee about the garnishment amount, specifics mentioned in the order, and the time of release in writing with a copy of the order attached. Employers must ensure that the employee is aware of the instructions specified in the order and the amount that needs to be deducted from their paychecks. The employer may also get into trouble for not following the instructions properly and not responding on time.

Plan Procedures for Wage Garnishment

To develop procedures for wage garnishment processing, employers should hire a competent wage garnishment professional who can review garnishment orders and handle them efficiently. A wage garnishment professional will help you understand the rules of calculating the garnishment payments according to the base amount of wage and the priorities of employees with more than one garnishment at a time. They will help guide you through the process properly and answer all of your questions.

Let’s Talk Wage Garnishment

Employers should know and regularly monitor the laws and rules relating to wage garnishment in their state. Businesses operating in more than one state should comply with the requirements of the garnishment laws in each state. For more information about IRS problem resolution and wage garnishments, you can connect with highly skilled tax attorneys available at the Law Offices of Nick Nemeth, PLLC. To speak with one of our attorneys, call (972) 426-2553, or fill out our contact form.